Andhra Pradesh H.C : The share holder to be benami of some other share holder, is the value of the shares held by such benami share holder liable to be included as income of the company itself when the real share holder is someone else

High Court Of Andhra Pradesh

Srinivasa Ferro Alloys Ltd. Vs. ACIT, Central Circle, Visakhapatnam

Section : 69C

L. Narasimha Reddy And Challa Kodanda Ram, JJ.

I.T.T.A. No. 64 Of 2000

June 17, 2014


Challa Kodanda Ram, J. – In this appeal preferred by the assessee under Section 260A of the Income Tax Act (for short, the Act), he raised the following questions of law, as arising from the order dated 08.02.2000 of the Income Tax Appellate Tribunal, B Bench, Hyderabad (for short, the Tribunal) in I.T.(SS)A No.4/viz/1997.

“1.Whether in a block assessment items which were already shown in regular I.T. Returns and in the accounts accompanying the I.T. Returns and which are processed in regular assessments could be included as undisclosed income when there was no material found in the course of search in relation to the said items.

2.Whether the assessing officer holds the share holder to be benami of some other share holder, is the value of the shares held by such benami share holder liable to be included as income of the company itself when the real share holder is someone else.

3. Whether in a block assessment, on the basis of the statement recorded from one share holder who is alleged to be a benami shareholder can it be inferred that all the shareholders are benami shareholders without examining each of them.

4.Whether a Tribunal can dismiss the appeal filed by an assessee without first adjudicating upon the admission of additional evidence filed along with the petition under Rule 29 of the Tribunal Rules 1963.

5.Whether the assessee is entitled to claim that the assessment of the peak amounts should be made instead of aggregate amount, based on the multiplicity of transactions, the time lag, the frequency of the transactions and the probabilities and inferences surrounding the nature of transaction without any further evidence.

In the event the peak balance could be considered whether the Tribunal correct in ignoring the appellants contention that the peak balance is covered by the cash balance available with the company and with the Chairman and therefore no addition is called for.

6. Whether the amendment to proviso to Section 69 C effective from 01.04.1999 is prospective in operation or retrospective in nature.

7.Whether the assessee is entitled to deduct business expenditure admittedly incurred from cash outside the books of account while computing its assessable income.”

2. The brief facts of the case are that the appellants premises were searched under the provisions of Section 132 of the Income Tax Act (for short, the Act) on 27.09.1996. Pursuant to the search the appellant had filed a return for the block period of 10 years under the provisions of Section 158BC of the Act, disclosing the undisclosed income at Rs.20,000/-. The block assessment was completed on an undisclosed income of Rs.4,49,16,630/-. Aggrieved by the assessment order dated 30.09.1997, the appellant filed Appeal under Section 253(1)(B) of the Act before the Income Tax Appellate Tribunal challenging the various additions made. By an order dated 08.02.2000, the Tribunal deleted some of the additions and while confirming some. Aggrieved by the said order of the Tribunal, the present appeal is filed.

3. However, on perusal of the record and on hearing the learned counsel for both the parties, the following two questions of law would arise for consideration and would address the controversy in issue:

“(a)Whether the amount reflected in Books of Account forming part of returns of a particular assessment year can constitute the subject matter of the proceedings under Chapter-XIVB of the Income Tax Act.

(b) Whether an assessee is entitled to claim deductions or allowances in respect of amounts which are found as unaccounted cash payments in the course of search under the resultant block assessment.”

4. In relation to the block assessments certain additions were made at the stages of appeal and further appeal also. The appellant is aggrieved by the additions made, of certain amounts which formed part of the books of accounts, for earlier years. To be precise, the additions of sum of Rs.11,85,000/-, Rs.6,87,000/- and Rs.2,40,000/- are in issue. Like wise, disallowances of certain expenditure incurred for the purpose of business not forming part of the books of accounts, but discovered during the search are also in issue. Reframed questions 1 and 2 reflect the matters in issue in the present appeal.

5. The principal contention of Sri Y. Ratnakar, learned counsel appearing for the appellant in relation to the additions forming part of question No.1 is that the amounts which have been added for the purpose of assessment for the block period as undisclosed income, are out rise the definition of the expression undisclosed income in Section 158B of the Act. He contends that all the amounts which were standing to the credit of respective parties in the books of accounts since 1991 and were reflected in the returns and the material was available for the Income Tax Officer, who made the assessments for the respective years. He further submits that the procedure adopted to ascertain the veracity or otherwise of the entries in the books of accounts in the earlier years is contrary to the prescribed procedure for making the assessments for the block period under Chapter-XIVB of the Act. He relied upon the judgments of the High Court of Bombay reported in CIT v. Vinod Danchand Ghodawant [2001] 247 ITR 448/114 Taxman 90 and High Court of Andhra Pradesh reported in CIT v. B. Satyanarayana [2013] 356 ITR 323/220 Taxman 86/[2013] 38 174.

6. Learned counsel submits that assuming but without conceding, that the appellant was not able to explain the amounts received towards share capital, an assessee, legally not capable of owning its own shares could not be assessed for the said sums and it is only the share holders who could be assessed for the investments made by them. On this basis, he submits that the addition of the respective amounts as undisclosed income in the block assessment is totally unsustainable.

7. On the other hand, Sri S.R. Ashok, learned senior counsel for the revenue supported the orders of the Tribunal and submits that the authorities below had provided ample opportunity to the appellant to produce the persons in whose names, the credits were standing in the books of the accounts. He submits the appellant failed to produce the said persons before the Income Tax Officer, and he cannot complain of the additions made treating the said amount as undisclosed income of the assessee.

8. For the purpose of deciding the case on hand, we may notice hereunder Section 158B(b) of the Act that defines the term undisclosed income.

Undisclosed income includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act.

9. This provision was discussed and interpreted by the High Court of Bombay in the case of Vinod Danchand Ghodawant (supra) and by this High Court in B. Satyanarayana (supra). It was held that only such adverse material, as was unearthed during the search, alone can be the basis for the purpose of block assessment, and not the one, that disclosed in the books of accounts in the earlier assessment years. It is settled by catena of judgments that there is no duty cast on the assessee to draw specific attention to each and every item of the books of accounts and it is for the Income Tax Officer to draw conclusions, based on the record and material placed before him and elicit clarifications in the event of doubt. Reference in this context may be made to the Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 (SC) Companies District-I, Calcutta and another and Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 (SC) Circle-I, Ward-A, Rajkot . Therefore, the amounts which were disclosed in the books of accounts for the earlier assessment years cannot be treated as undisclosed income, in the block assessment proceedings.

10. Accordingly, the question No.1 is answered in the negative i.e., in favour of the appellant and against the revenue.

11. So far as question No.2 is concerned, certain expenditure which were not brought into the books of accounts were added in the block assessment. To be precise, the dispute relates to three payments of Rs.3,00,000/-, Rs.65,000/- and Rs.1,80,413/-. The appellant contends that while the assessing officer is entitled to consider such expenditure as undisclosed income by invoking Section 69C of the Act, there is a corresponding duty to allow the expenditure which was in fact incurred in the course, and for the purpose of the business.

12. The Tribunal discussed this aspect in para Nos.97 to 112 of its order. It found that the payments and receipts and the source of expenditure, have not been explained satisfactorily; and that the same were not reflected in the books of accounts of the assessee. It dealt with each of the entries and observed that the Assessing Officer found the details of payments made by the assessee the books and that there was no satisfactory explanation forthcoming with respect to the source for effecting the said payments. However, the explanation given for the amount of Rs.3,00,000/- that it was received from the individuals, was not considered, on the ground that there is no material to support such claim.

13. The plea of the appellant about Rs.65,000/- is that once the Assessing Officer disallowed the expenditure, the same cannot be added for the purpose of assessment. Likewise, regarding the amount of Rs.1,80,413/- his explanation is that 6%, over and above the interest which has been recorded in the books of account, has been paid in cash, but it is not reflected in the books. His contention is that when an addition is being made treating the said amounts as undisclosed income, the corresponding expenditure must be allowed as expenditure, since the very basis of making addition is on the premises of expenditure is incurred, which has not been brought into books.

14. In this context Section 69C of the Act that was applicable for the relevant assessment years, becomes related. It reads:

“69C. Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the Assessing Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year.

Provided that notwithstanding anything contained in any other provision of this Act, such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as a deduction under any head of income.”

15. The Tribunal found that each of the amounts which are added by invoking Section 69C of the Act, did not form part of the books of accounts and that there was no proper explanation or supporting material, as to their source, in spite of opportunity was given to the appellant by the assessing officer. In our view, Section 69C of the Act would take in its sweep, not only of the expenditure which was reflected in the books of accounts about also the other items of expenditure regarding which no proper explanation is forthcoming from the assessees, once they were discovered in the course of search and seizure. To give any other meaning to the Section would defeat the very purpose, for which it has been incorporated in the statute. Therefore question No.2 framed above, is answered against the appellant and in favour of the respondent.

16. In the result, the appeal is partly allowed, to the extent indicated above. There shall be no order as to costs.

[Citation : 368 ITR 424]

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